Estimating a Falsified Model: Some Impossibility Theorems

Andrew Buck () and George Lady ()
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George Lady: Department of Economics, Temple University

No 1506, DETU Working Papers from Department of Economics, Temple University

Abstract: A recent literature, e.g., Lady and Buck (2011), has shown that a qualitative analysis of a model’s structural and estimated reduced form arrays can provide a robust procedure for assessing if a model’s hypothesized structure has been falsified. This paper shows that the even weaker statement of the model’s structure provided by zero restrictions on the structural arrays can be falsified, independent of the proposed nonzero entries. When this takes place, multi-stage least squares, or any procedure for estimating the structural arrays with the zero restrictions imposed, will present estimates that could not possibly have generated the data upon which the estimated reduced form is based. The examples given in the paper are based upon a Monte Carlo sampling procedure that is briefly described in the appendix.

Keywords: qualitative analysis; Monte Carlo; model falsification; impossible estimates (search for similar items in EconPapers)
JEL-codes: C15 C18 C51 C52 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-ecm and nep-ore
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http://www.cla.temple.edu/RePEc/documents/DETU_15_06.pdf First version, 2015 (application/pdf)

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